California insurance commissioner vows action against home insurers that drop customers due to wildfire risk

As California struggles through another fierce wildfire season, the California insurance commissioner on Monday was critical of home insurers for increasingly scrapping property coverage for people living in fire-prone parts of the state.

Ricardo Lara, who held an online hearing on the matter, is trying to hold insurers accountable for dropping policies and boosting annual premiums by large amounts. The homeowner insurance quagmire is especially problematic in areas around the Sierra foothills, but has stretched into areas around the North Coast that have dealt with escalating wildfire activity since 2015.

“I have heard your nightmarish fears of losing everything that is precious to you, despite your heroic efforts to protect your homes, families, and communities from these wildfires, and the unfathomable frustration endured over losing your insurance,” Lara said.

He intends to take action to: make insurers reveal more about how they score wildfire risk on homes and what property owners can due to reduce it; establish coverage standards for homeowners that upgrade properties to better protect them from fires that would apply to all insurance companies statewide; and require insurers to seek “adequate and justifiable rates” in the marketplace.

Sonoma County homeowners soon could be in greater jeopardy of losing property coverage. Lara last year issued an order that prevented home insurers from dropping 140,000 policyholders living close to the 2019 Kincade fire. But that protection will end on Oct. 25. After that, insurers will be able to cancel property insurance policies in that area.

Already, it is getting harder to obtain homeowner coverage in parts of California. In 2019, property insurers dropped 235,250 policies, 31% more than the previous year.

Meanwhile, 190,196 homeowners were forced to get coverage from the state-sponsored insurer of last resort, called the FAIR Plan, a 36% jump. One homeowner living in a high-risk fire area told the insurance commissioner annual premiums had increased by 430% over the last two years.

Insurance industry representatives warned any heavy-handed new state regulation could make property insurance less available. State Farm Insurance, which has 2 million homeowner policies across the state, has not canceled policies due to wildfires, but is not writing new ones in certain high-risk fire areas statewide, said Nicole Forziati, a State Farm company.

“If we have sustained difficulty in matching the (annual) premiums we charge with the risk we bear, we must consider limiting growth or even reducing policy count because jeopardizing our ability to follow through on claims promises is not an option,” Forziati said.

Consumer advocates contend the state’s home insurers need greater regulatory scrutiny, noting the sector received a $11 billion settlement from PG&E related to losses incurred in the 2017 wildfires and 2018 Camp fire. That extra money resulted in an average annual profit margin for California insurers of 12.6% for homeowner policies during the period of 1996 to 2018. That was higher than the national average margin of 5.9%.

“As we consider ways to address these issues, we should not be eliminating California consumer protections in order to increase the industry’s already above-average profits,” said Doug Heller of the Consumer Federation of America.

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.